Europe's automotive industry crisis: causes and numbers

A sector that carries the weight of an entire country

In Europe, the car industry is not just one sector among many: according to ACEA, the manufacturers’ association, it employs about 13 million people, directly and indirectly — 7% of all jobs in the European Union — and generates a further 7% of the bloc’s GDP. The European Parliament, in an October 2024 briefing, arrives at a similar figure — 13.8 million jobs — and notes that the sector accounts for 8% of Europe’s manufacturing value added. That is why, when major groups announce cuts, the news is not just about shareholders: in Germany, more than one in ten manufacturing workers is employed in the automotive sector.

In July 2026, EU Commissioner Stéphane Séjourné described the industry as facing “mortal danger” from Chinese production overcapacity — a strong statement that reflects how much pressure had built up in the preceding months.

The tangled causes

There is no single culprit. The European Parliament’s briefing lists a set of factors that compound one another: the shift toward low-emission vehicles, weaker supply chains, growing competition from Asia, falling demand for electric models, sluggish economic growth, high energy costs, and the industrial policies of other governments, from US incentives to Chinese subsidies.

Among these factors, one is particularly measurable: according to the European Parliament’s estimate, building a car in the European Union costs about 30% more than building it in China. It is one of the central competitive bottlenecks, not the only one: it overlaps with demand that, as of August 2024, had already shown signs of weakness (EU registrations down 18.3% year on year, with battery electric cars down 43.9%), even though the picture in the first half of 2026 turned positive again, with registrations up 5.7% since the start of the year, according to ACEA.

On top of production costs and Chinese competition come US tariffs on car and component imports, introduced the year before 2026: for the Volkswagen group alone, the estimated annual cost runs between 4 and 5 billion euros, depending on the source. Brands such as Audi and Porsche, which have no production plants in the United States, feel the impact more than others.

Practical example: picture a group that has to sell the same electric car in three different markets. In Europe, production costs are higher than in China, so margins get squeezed; if that same car is also sold in the United States, an additional tariff like the ones introduced in this period eats further into the bottom line; and if sales in China are falling — as happened to Volkswagen, with deliveries at their lowest since 2011 — there is not much room left to make up the difference elsewhere. None of these three problems on its own would explain a restructuring plan affecting thousands of jobs; together, they do.

Who is cutting jobs, and where

The restructuring plans announced in 2026 show just how widespread the pressure is, even if the intensity varies from group to group.

The Volkswagen case is the largest: on top of the 50,000 cuts already agreed with unions at the end of 2024 (targeting 2030), another 50,000 would be added. CEO Oliver Blume summed up the situation bluntly during the supervisory board meeting on 9 July 2026: the business model of past decades “no longer works,” and the company has to change or risk disappearing. Around the same time, the group’s net profit for the first quarter of 2026 had already fallen 28% year on year.

Renault points to a specific figure to justify its cuts: Chinese manufacturers are said to have more than tripled their market share in Europe between 2024 and 2026, pushing technologically advanced products at very competitive prices.

An uneven impact, even within the same group

Not all European production is falling at the same pace, which undercuts the idea of a uniform crisis. In Italy, Stellantis’s overall production fell 20% in 2025 compared with the previous year, with the Melfi plant losing 47.2% — the sharpest decline of any of the group’s Italian sites. In the same year, however, Mirafiori grew 16%, even though it started from a very low base of just 26,000 units produced in 2024. Stellantis has nonetheless confirmed a 2-billion-euro investment plan for Italy, including a new Alfa Romeo model at Melfi and an electric-vehicle program at Pomigliano.

A crisis that hits unevenly is harder to read than a broad-based downturn; understanding the difference can help explain what a recession actually is and how it is measured — a phenomenon that affects an entire economy, not just one sector.

Brussels’ response

The European Union has not stood still. Since 30 October 2024 it has applied final countervailing tariffs on battery electric cars imported from China, on top of the existing standard 10% customs duty: the rate varies by manufacturer, from 7.8% for Tesla to 35.3% for SAIC, averaging around 20.8%, and will remain in place for five years. It is the first time the European Commission has launched an anti-subsidy investigation of this kind on its own initiative, without a prior complaint from the industry.

The results, according to Il Sole 24 Ore, are only partial: the share of China-made models in the European market fell from 22% in 2024 to 17% in the first quarter of 2026 — a five-point drop, but not a wipeout. Meanwhile, according to S&P Global Ratings, the overall share of Chinese brands in Europe (including those also made outside China) still rose to 7% in 2025.

On the industrial front, the European Commission, led by Ursula von der Leyen, launched a “Strategic Dialogue” on the sector on 30 January 2025 and presented an action plan on 5 March 2025, with an additional package in December 2025. Measures include 1.8 billion euros for battery manufacturing in 2025-2026, 1 billion euros of public-private investment in innovation, 570 million euros for charging infrastructure, and 90 million euros for worker training. Manufacturers also gained more flexibility on CO2 targets, allowing them to average compliance over three years (2025-2027) instead of year by year — though the ban on selling new internal combustion vehicles from 2035 remains unchanged.

Anyone following the pricing and market dynamics of this kind of industrial crisis may also find it useful to read about how inflation and energy costs work, or about interest rates, which affect carmakers’ ability to finance the shift to electric vehicles. To put the sector’s weight in the broader economy into perspective, the article on GDP is also a good starting point.